Digital Transaction Banking report

Transaction banking business in danger of threat by FinTech companies

Singapore, 3 February 2015 — According to a Deloitte report ‘Digital Transaction Banking: Opportunities and Challenges’ released today, the challenge that banks face in today’s age of digitalisation is intensified by the emergence of alternative non-bank players, or FinTechs. These players are beginning to transform the financial sector by creating disruption practices such as providing online banking and offering a wider spectrum of new services, such as mobile payments and crowd-funding.

The report projects that by 2025, the total spending power of end-consumers will be approximately USD2.5 trillion in Australia, Hong Kong, Malaysia and Singapore; 75% of this will come from digital natives (Generation Y and Z) and the digitally-savvy (Generation X). As these end-clients and their activities increase in importance, this has implications on businesses and governments who are served by the banks.

Findings from the report highlight that to better address the needs of end-clients, banks need to understand that there are varying levels of digital technology adoption. The report examines the top ten global technologies trends that have cascaded down to the different industries and sectors, and seeks to provide these banks with insights on how they can address the needs of their digitally evolving end-clients. It is imperative for banks to recognise these new trends.

The report shows that there are two main strategies of addressing the shift in digital adoption: ‘Digital Inside-Out’ versus ‘Digital Outside-In.’ ‘Digital Inside-Out’ refers to initiatives by banks that are internally driven. However, this strategy is unlikely to be sustainable and there is an increasing need for banks to adopt the ‘Digital Outside-In’ strategy exploring externally driven initiatives that can fill the gaps and augment their digital capabilities.

“Banks are seeing the increased demand of digitalisation, but have yet to react in full scale,” observesMohit Mehrotra, an Executive Director with Deloitte Consulting. “Most banks in Asia adopt a ‘Digital Inside-Out’ strategy, focused on investment in internally-driven digital initiatives to better provide traditional transaction banking solutions. This strategy may not suffice in addressing the clients’ demand for digital functionality and cost efficiency.”

“Coming quickly from behind are the FinTechs that are transforming the financial sector by revamping offerings and solutions in the new digital landscape, thus obtaining first-mover advantages and seizing the opportunities that the banks miss out by being inward looking,” says Mr Mehrotra.

According to Visa, a key technology partner for banks across the region and sponsor of the report, the future growth of banks will hinge upon the ability to partner with these new and different organisations.

Olivia Leong, Head of ‎Commercial and Prepaid Payment Solutions for Visa, Asia Pacific, explained that like its bank clients, Visa also sees new partnerships as crucial to future growth in financial services. “For a number of years now, we have been building relationships with the FinTech community as a way to bring new innovations to our bank clients, merchants and governments. As the shift to digital accelerates and the opportunities become even more exciting and dynamic, we have increased our focus on these partnerships and are strengthening them through greater access to our payment network,” said Leong.

The report highlights examples of how banks can quickly enhance their digital abilities by collaborating with FinTechs. For instance banks have leveraged FinTechs’ strength in technology-driven software, platform and infrastructure.

“Instead of seeing FinTechs as rivals in the playground, there are great opportunities for collaboration so that both players can co-exist in the same space with a win-win situation,” says Mr Mehrotra. “This collaboration could help banks capitalise on market opportunities by strengthening the digital capabilities on their existing products or solutions.”

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